Future Workers Compensation Additional Benefits from Third Party Claim

In Southern Cal. Edison Co. v. Workers' Comp. Appeals Bd. (1997), the employee sustained serious injuries while servicing a meter which exploded. His employer, Southern California Edison Co. (SCE), began providing workers' compensation benefits. In addition, the employee sued the manufacturer of the meter, General Electric (GE) and settled for $ 340,000, receiving a net recovery of $ 194,000 after payment of costs and attorneys' fees. By that time, SCE had paid $ 75,478 in workers' compensation benefits, and had filed its own suit against GE for reimbursement. SCE's suit settled for $ 40,000. The workers' compensation judge found SCE 25 percent liable and therefore responsible for $ 85,000 of the employee's total damages (25 percent of $ 340,000). The issue on appeal was how to calculate the credit against future benefits which SCE could claim if, as was expected, the employee required future medical treatment or rehabilitation. The workers' compensation judge concluded that SCE would get a $ 109,000 credit against future benefits ($ 194,000 minus $ 85,000), but only after its payments to the employee totaled $ 85,000 not including the $ 75,478 already paid. The judge reasoned that SCE's entitlement to reimbursement for the $ 75,478 already paid had been settled with the third party and so should not enter into the calculation. On appeal, SCE contended that it was entitled to count the full $ 75,478 already paid towards its threshold responsibility of $ 85,000 without regard to the $ 40,000 it had received from GE. the appellate court disagreed with both approaches. Although it agreed with SCE that the previous payments should be included in the employer's "credit threshold" even where the employer has settled its claim for reimbursement, the court concluded that the amount received by way of settlement with a third party cannot be credited to the employer for purposes of the credit threshold. (58 Cal. App. 4th at p. 769.) In other words, the employer must first pay out an amount equivalent to its comparative share of liability based on its own negligence, deducting any amount it has already paid and adding anything it received by way of settlement with a third party tortfeasor (using the Southern Cal. Edison figures, $ 85,000 minus $ 75,478 plus $ 40,000--or $ 44,617). After the employer has paid out sufficient funds to meet this threshold, it is entitled to a credit against future benefits based on the amount the employee's net recovery exceeds the employer's share of liability ($ 194,000 minus $ 85,000 or $ 109,000 in Southern Cal. Edison). Thereafter, the employee cannot obtain further workers' compensation payments until his or her future expenses exceed the employer's credit amount. the employer's or carrier's settlement of its claim for reimbursement of past benefits (often called its "lien claim") does not affects its right to obtain a credit for future benefits. (See, e.g., Curtis v. State of California ex rel. Dept of Transportation (1982) "The waiver, failure to assert, or settlement of a lien claim in a civil action is not necessarily a settlement or waiver of the credit right. . . . . . the right to a credit and the right to a reimbursement are separate and distinct rights and the waiver of a right to reimbursement does not mean that a credit right has been waived.") This is because the employer or carrier, in its independent action against the third party tortfeasor, "cannot recover for workers' compensation benefits not yet determined by the appeals board." (Herr v. Workers' Comp. Appeals Bd. (1979) 98 Cal. App. 3d 321, 327 159 Cal. Rptr. 435.) The impact of a bad faith allocation of settlement proceeds on an employer or its carrier can be understood if we review the manner in which the credit for future benefits is calculated.